CHAPTER

The Strategic
Management Process

McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
LEARNING OBJECTIVES

1. Explain the role of vision, mission, and values in the strategic

management process.
2. Describe and evaluate the role of strategic intent in achieving
long-term goals.
3. Distinguish between customer-oriented and product-oriented
missions and identify strategic implications.
4. Critically evaluate the relationship between mission statements
and competitive advantage.
5. Explain why anchoring a firm in ethical values is essential for long-
term success.
6. Compare and contrast strategic planning, scenario planning,
and strategy as planned emergence, and discuss strategic
implications.
Strategic Management Process
The method by which managers conceive of and
implement a strategy that can lead to a sustainable
competitive advantage

Key first steps

Define the Vision, Mission and Values of the organization
 VISION, MISSION, AND VALUES

What are visionary organizations?

Begin with the end in mind

Similar to designing & building a home (architects blueprints)

Vision what the firm ultimately wants to accomplish; why does it

exist?

Mission what the firm does to accomplish its vision

Values how the firm accomplishes these goals

Vision Statement
Statement of what organization wants to accomplish.

Captures companys aspirations.

Should help employees feel as if they are part of accomplishing

the vision.

Examples:
Teach For America:
One day, all children in this nation will have the opportunity to
attain an excellent education

American Red Cross:

Touching the lives of people in need
EXHIBIT 2.1 Teach For America: Vision, Mission,
and Values
One day, all children in this nation
Vision will have the opportunity to attain
an excellent education.

Eliminate educational inequality

Mission by enlisting our nations most
promising future leaders in the
effort.
Relentless pursuit of results.
Values
Sense of possibility.
Disciplined thought.
Respect and humility .
Integrity.
 18

For Profit firms

Amazons Vision Statement:

Our vision is to be earths most customer centric company; to

build a place where people can come to find and discover
anything they might want to buy online.

Apples vision:
We believe that we are on the face of the earth to make great
products. We are constantly focusing on innovating. We
believe in the simple not the complex.
We believe that we need to own and control the primary
technologies behind the products that we make, and
participate only in markets where we can make a significant
contribution. We dont settle for anything less than excellence
in every group in the company. - Tim Cook
 19

STRATEGIC INTENT
What is forming strategic intent?
Staking out a desired leadership position in the long term that far
exceeds a company's current situation; With stretch goals - what
does success look like?

Examples
Canon "beat Xerox"
Komatsu encircle Caterpillar
Honda become a second Ford
Lenovo achieve world leadership

Generally, using stretch goals helps to achieve a competitive

advantage for tomorrow; by helping to operationalize their vision
Must be realistic!
Mission Statement
A declaration of what the firm does to accomplish its vision.
provides the framework/ context for strategies to be formulated
within
Builds on the vision statement
Use metaphors to help employees when faced with daily
situations
Disney: "Make people happy. Park employees are cast
members not workers.
Starbucks: "To inspire and nurture the human spirit one
person, one cup and one neighborhood at a time.
Employees are baristas not just counter workers.
Missions: Customer Oriented vs. Product Oriented
VISION, MISSION, AND VALUES
CUSTOMER-ORIENTED MISSIONS

Defines the firms purpose in terms of providing solutions to

address customer needs

Leave open HOW to satisfy the need

Examples
Disney: "Make People Happy"
Ford provide personal mobility to people around the world
(PRIOR .. make the automobile accessible to all Americans)
Rail Road companies serve the full range of transportation
needs
(PRIOR .. being in the RR business)
VISION, MISSION, AND VALUES
PRODUCT-ORIENTED MISSIONS
Define the firm in terms of products or services they offer

Advantage = easier to apply core competencies -- achieving

competitive advantage

Disadvantage = less likely to expand into new markets

U.S. Railroads being in the railroad business
Missed the chance to move into delivery before UPS & Federal Express.
Also, lagged in providing alternate means of transportation

Customer oriented missions provide greater strategic

flexibility than Product oriented missions
MISSION STATEMENTS AND
COMPETITIVE ADVANTAGE
Do mission statements help companies gain/sustain competitive
advantage?
Results are inconclusive; they can help, hurt (especially if they
are unrealistic) or have no effect
Need strategic commitments to succeed

Not all mission statements are associated with original

outcomes:
Intel achieved superior performance by continuous adaptation to
changing market realities: microprocessor chip manufacturer to
supplier to Internet economy.
Finally modified mission to --~ delight our customers, employees,
and shareholders by relentlessly delivering the platform and
technology essential to the way we work and live.
Vision & Mission Statement Assignment

Develop vision and mission statements for your

camera companies:

For example:

Vision: Capture the worlds memories / moments

Mission: Making exciting and fun-to-use cameras

so the world wants to capture its memories

Have completed by due date of real Year 6.

(Saturday Jul 18th) and each team to submit
by email. Read text book for guidelines
Quick Quiz
1. Strategic intent is used by firms to help define their
short-term objectives.

a) True b) False

2. In order for managers to determine the vision, mission,

and values for their organization, they should:

a) Begin by asking What is our competitive advantage

b) Determine what strategic group they belong to first
c) Begin with the end in mind.
d) Seek employee feedback
Strategic commitments
To be effective back up mission statements with strategic
commitments

These are actions that are resource intensive, long-term

oriented and difficult to reverse

Helps align mission objectives with perceivable action

 VALUES
Ethical standards and norms that govern behavior.
Answers: How do we accomplish our goals?

Act as Guiding Principles and Guard Rails

Employees will model executives behavior, both positive and negative

Managers signal to employees what is valued

Googles Values:
Democracy on the web works; Make money without doing evil; The need for
information crosses all borders

How do we know if a companys values are real or just words?

Enron, Bernie Madoffs firm touted integrity as a key value what happened?

Bernard Madoff
Ponzi scheme estimated at $65 billion in fraud

Enron
One of the largest bankruptcies in U.S. history
Over 50,000 jobs lost (Enron & Arthur Anderson)

2-18
 The Strategic Management Process
How is Strategy Made
1. Strategic Planning
Long range (5 yr) plan; considers internal/external factors; big-
picture plans (e.g. new markets, acquisitions, etc.)
Less focus on execution of strategy
Analyze data ; past behavior is predictor of future performance
Works well where the environment does not change very much.

2. Scenario Planning
Ask what if questions
what to do if the world does not behave as planned: plan for 3-5
scenarios (+ve and -ve scenarios)

3. Strategy as Planned Emergence

Incorporate strategic initiatives and emergent strategies originating
from all levels of the company
 120

Strategy as Strategic Planning

Top-down rational planning process

Define mission, vision, & goal (strategic intent)

External analysis of opportunities and threats (O, T)

Internal analysis of strengths and weaknesses (S,W)

Create strategic fit through SWOT

Formulate appropriate strategy

Implement chosen strategy

Monitor performance vs. Annual budget & modify

 Strategic Management Process
Vision
Mission
Values
Objectives/Goals

Company's Company's
External Analysis Internal Analysis
Monitor & Modify

Corporate Strategy

Business Strategy

Functional Strategy

Strategy Implementation
Strategic Initiative / Plans
Business & Financial Tracking Data
Organization, management, performance, governance, etc. decisions
 22

Formulation Stage
Management teams develop different strategic plans to address
possible future scenarios

Develops contingency plans

Attempts to answer questions such as

1. What resources and capabilities are necessary to compete

successfully in each future scenario?

2. What strategic initiatives should we put in place?

3. How can we shape our expected future environment?

FORMULATION
CORPORATE LEVEL STRATEGY
What Businesses to be in
Major Portfolio Decisions Financing Leadership - M&A etc.

BUSINESS LEVEL STRATEGY

Market Segmentation
Product Differentiation
Competitive Factors .. Mkt Scope, Cost, Price, Demand, etc.
Business Plan
Other .. Competencies, Intl, Bus Plan, etc.

FUNCTIONAL LEVEL STRATEGY

R&D Production Marketing
Distribution Sales Service
Product
Procure
Rqmnts

Inspect
Assem

Promo
Place

Price
Engineering
Mfg

etc

Finance
etc.
Strategic Planning
Traditional view of strategy

Works reasonably well in stable environment

Scientific management

Strategy is an engineering programming problem

Past predicts the future

Strategy as Scenario Planning

Scenario Planning

Envision different "what-if" plans

Generates a dominant plan

Must implement the most probable plan

Keep other scenarios in the event of changes

Uses AFI framework (Analyze, Formulate, Implement)

AFI
Framework
AFI Framework Scenario Planning

Good example of the AFI framework, Shell:

In 70s, planned future predicting strong influence

OPEC well positioned

In 80s speculated that communism would fall,

eliminating artificial restrictions on natural gas.

Shell rose from #8 to #2 in the world .

2-27
 UPS Scenario Planning

UPS execs. identify 6 critical issues to shape its future:

1) The price of oil
2) Climate change
3) Trade barriers
4) BRIC countries (Brazil, Russia, India, China)
5) Political instability
6) On-line commerce worldwide
Managers then formulated strategies they can activate
should any of the scenarios become significant
 UPS Scenario Planning
What factor did UPS planning fail to consider in 2013?
1) Dramatic impact of weather: numerous snowstorms
2) Timing of snowstorms: late Nov. & Dec.:
Caused dramatic increase in on-line shopping
Insufficient number of warehouses to handle
efficient, effective distribution
Result: Christmas presents were not delivered on
time, very dissatisfied customers.
Strategic Solutions:
1. Hired more personnel
2. Build and strategically locate 800 trailers
(similar to those used by schools)
 Strategy Formulation and Implementation
Vision
Mission
Top-down strategy: Values
Goals
A plan to support specific
goals. External Internal
Analysis Analysis

Corporate Strategy
Emergent strategy:
Business Strategy
Bottom-up strategies.
Functional Strategy

Implementation

30
 31

Strategy as Planned Emergence

Based on the principle that managers need to focus
on all levels of information sources, including those
that create new insights

An emergent strategy is an unplanned strategic

initiative undertaken by mid-level or low level
managers of their own volition.

If proven successful, emergent strategies have the

potential to influence and shape a firms strategy
 Mintzberg's Planning Framework
Asserts that strategic planning process is too regimented doesnt allow for strategic thinking
Strategy can be planned or emerge from the bottom-up
Mintzberg developed a more integrative & complete framework for strategy making
Begins with top level intended strategy
Incorporates unpredicted events or emergent bottom-up strategies

Intended
Strategy
Top-down Strategic Plan

Realized
Strategy
What Happened
Unrealized
Strategy
Unpredicted Events

2008 Housing Bubble Bottom-up

Apple iPod & iPhone Emergent Strategy Japan Railroads Bottled Water
Autonomous Actions 3M Post-its
Serendipity
Real Options
.
 133

Bottom-up Strategic Initiatives/

Autonomous Actions
Microsoft
Internet Explorer
Xbox
3M
Post-its
Google
50% of new products come from 20% autonomous time
Starbucks
Frozen coffee
Many others
 134

STRATEGY HIGHLIGHT 2.3 Its Not What We Do!

Starbucks
Autonomous action of mid-level manager

Tenacity and persistence of a store manager

Risk of failure

Possible career-limiting action

Organization must be willing to accept new ideas

Frappuccino was born! (multi-billion $ product)

Contributing 20% of revenues for Starbucks: (~$2 billion)

http://en.wikipedia.org/wiki/Frappuccino

http://www.bostonmagazine.com/news/blog/2012/12/07/frappuccino-history/
 135

Chapter Case 2 Teach For America: Inspiring Future Leaders

TFA Mission: Eliminate educational inequality

Started by an undergraduate student

Inspiring mission

Provide a meaningful service option for bright young people

Make teaching to the neediest high prestige

Over 40,000 applicants for 4,500 jobs

TFA Video
CHAPTER CASE 2/ In Class

Teach For America is TWENTY years old!

A $200 million dollar organization

Teacher effectiveness improves with
Studentoriented achievement = course objectives

What role did TFAs vision statement have?

How have they recruited so many into teaching?

Could it have worked as a for-profit firm?